Business leaders are continuing to reshape their company portfolios despite a challenging geopolitical environment, with 52% of global corporates planning to pursue acquisitions in the next year, the latest Global Capital Confidence Barometer (CCB), published by advisory firm EY, shows.
The search for technology and talent is driving deals, with two-thirds (66%) of respondents planning to allocate more than 25% of their total investment capital to technology, mostly solutions that drive top-line growth.
More than half of executives (56%) will invest in technology through acquisitions, joint ventures or external venture funds.
At the same time, almost two-thirds of respondents (61%) are experiencing difficulties securing the right skills and talent. That number is even higher in the UK (66%) and Germany (72%).
“In terms of investing in technology, the answer to the buy-versus-build question for most companies is tilting toward buy.
“At the same time, the shortage of talent is a constraint on growth and acquiring the skills needed to underpin future growth is increasingly part of the current mergers and acquisitions (M&A) story,” says EY Transaction Advisory Services global vice-chairperson Steve Krouskos.
ECONOMIC DOWNTURN NOT EXPECTED
The likelihood of a recession in the near- to mid-term is not considered a significant threat. Most respondents (54%) are not expecting an economic downturn.
While the majority of respondents from major economies remain confident in their economic outlook, this is deeply contrasted in Germany where 80% expect a downturn and the UK where 62% expect a downturn.
Despite these concerns, the deal market in Germany and the UK has remained active this year.
Executives in the US are the most bullish, with 78% of respondents discounting the chance of significant economic downturn in the near- to mid-term.
Companies are managing through trade and tariff issues that could be perceived as undermining economic confidence. Almost two-thirds of businesses (64%) are actively planning to mitigate the impact of trade and tariff issues in ways such as reconfiguring supply chains and relocating production facilities. A further 22% are actively considering their options to respond to this fast-changing situation.
In the context of this bullish economic outlook, the deal market going into 2020 looks set to be highly competitive. Eight in ten respondents expect to see an increase in hostile and competitive bidding in the next year and 75% of respondents expect private equity to be a major acquirer.
Respondents expect increased megadeal activity (valued at more than $10-billion), with more than half (55%) foreseeing an increase in deals topping the higher-than-$10-billion mark.
Almost three-quarters (72%) do not anticipate any slowdown in merger and acquisition (M&A) activity overall and a similar number (71%) of corporate executives forecast an increase in cross-border deal making.
LESS OPTIMISM LOCALLY
South African views are less optimistic when it comes to global economic growth.
“Local views on local economic growth have also declined in the current survey,” Krouskos notes.
“Key challenges are short-term market stability, credit availability for deals and equity valuations.”
In South Africa, respondents view the greatest external risk to the growth of their business as geopolitical or local political uncertainty, supply chain disruption caused by trade/tariff disputes and regulatory uncertainty.
However, encouragingly, local respondents believe the M&A market will improve in the next 12 months.
“Key drivers of South African M&A are as gateways to new markets, whereas global respondents use it primarily as a means of acquiring technology, new production capabilities or innovative startups,” Krouskos concludes.